Energy stocks pack on solid gains

SteveGelsi

NEW YORK (MarketWatch) -- Oil and gas stocks outpaced gains in the broader sector Tuesday as optimism over mild economic data and a possible interest rate cut by the U.S. Federal Reserve stoked buying in the energy sector.

Hurricane Felix made landfall in Central America, avoiding U.S. energy production operations in the Gulf of Mexico. The storm didn't appear to play a major factor in stock moves.

An upgrade of oil giant Royal Dutch Shell
RDSARDSB
as a longer-term investment play also helped provide an early lift for the sector.

The Amex Oil Index
XOI
rose 1.8% to close at 1,391, with U.S.-listed shares of Royal Dutch Shell up 3.2% at $79.80.

UBS upgraded Royal Dutch Shell to buy from neutral, citing valuation. "Weaker markets have impacted the Royal Dutch Shell share price and hence we now see attractive upside," the broker said.

Hurricane Felix, after slamming ashore on Nicaragua's Miskito coast as a dangerous Category 5 storm, weakened significantly as it moved inland, drenching northern Nicaragua, El Salvador and Honduras. The National Hurricane Center in Miami downgraded Felix to a Category 1 storm late Tuesday, with sustained winds down to 75 miles per hour. See full story.

Crude for October delivery nevertheless rose $1.04 to close at $75.08 a barrel on the New York Mercantile Exchange as traders eyed new storms brewing in the Atlantic and fretted about what the Organization of Petroleum Exporting Countries might do when its members gather next week to review production policy. See Futures Movers.

Rounding out the action in sector benchmarks, the Amex Natural Gas Index
XNG
rose 2.5% to 489.1 and the Philadelphia Oil Service Index
$OSX
rose 2.7% to 281.5 points.

Legacy Reserves
LGCY
rose 2.6% to $23.81 a share after the Midland, Texas energy partnership set plans to buy oil and natural gas producing properties in the Texas panhandle from private parties for $60.5 million.

Legacy Reserves said it expects the acquisition to be immediately accretive to distributable cash flow per unit. Management will recommend to the board of directors of the general partner of Legacy Reserves LP an increase to the distribution in the fourth quarter, payable in first quarter of 2008.

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